Chapter 4, Problem 4.1EYCT

(a)

To determine

Adjusting entries:

Adjusting entries refers to the entries that are made at the end of an accounting period in accordance with revenue recognition principle, and expenses recognition principle.  The purpose of adjusting entries is to adjust the revenue, and the expenses for the period in which they actually occurred.

Adjusting entries are classified into two categories.  They are as follows,

• Deferrals, or
• Accruals.

Deferrals:

Deferrals refer to the revenues that are collected in advance before the services are provided or sales are made to the customer, and the expenses are paid in advance before the expenses are incurred.

Deferrals are classified into two types.  They are prepaid expenses, and unearned revenues.

Prepaid expenses:  The expenses are paid in cash, before they are incurred.

Unearned revenue:  The cash is received, before the services are performed.

To identify: Theitems that may result in adjusting entries for deferrals.

(b)

To determine

Accruals:

Accruals refer to the revenues that are generated from goods delivered or, service performed to the customer, but cash is not yet received from the customer, and the expenses are incurred, but cash is not yet paid.

Accruals are classified into two types.  They are accrued revenues, and accrued expenses.

Accrued revenues: Revenues are generated but not yet received in cash.

Accrued expenses: Expenses are incurred but not yet paid in cash.

To identify: The two items that may result in adjusting entries for accruals.

(c)

To determine

To identify: The amount of depreciation and amortization expense for 2014 and 2013, and identify where it is reported

(d)

To determine

To identify: The amounts of income tax reported in the cash flow, and identify the amount of income tax expense reported in the income statement.